The signing of the US-backed Abraham Accords between the UAE and Israel in 2020 was supposed to represent a new era in ties between Abu Dhabi and Washington.
However, since then, the UAE has defied the US on global issues, most notably on Russia’s invasion of Ukraine.
At the onset of Moscow’s war, the UAE took an unexpected position in the United Nations Security Council, abstaining from voting to condemn the Russian ‘special military operation’.
Weeks later, the UAE abstained in another vote to suspend Russia from the UN Human Rights Council. But more importantly, Abu Dhabi has also embarked on helping Russia overcome Western sanctions devised to undermine its will to fight.
Russian businesspeople and entrepreneurs have sought to move their businesses to Dubai to benefit from its global standing as a key financial hub. Similar to many Iranian businesses subject to Western sanctions, Russian businesses are using the UAE as a base to avoid such sanctions and continue their operations.
Wealthy Russians have been applying for the UAE golden visa scheme which enables applicants to gain long-term residency in the country conditional on investing 10 million dirhams (£230,000) in a local company or an investment fund. The flocking of Russians to Dubai has meant that billions of potentially sanctionable dollars and euros have been transferred to the emirate.
The property market in the UAE has also been another key recipient of Russian funds, causing a boom in a market that has been recovering from the Covid-19 slowdown. The UAE is also aspiring to be an industrial hub for some Russian factories struggling to access the global market due to sanctions, which would generate significant financial flows to the country.
Luxury yachts dock in Dubai and private jets are hangered in its airports. More Russians are also interested in the UAE for tourism as they struggle to access other destinations due to sanctions.
The result is pumping the UAE market with billions of dollars and supporting the strength and the reserves of the UAE national currency, the dirham, which plummeted in February partly due to the implications of Russia’s war on the global economy.
Despite the UAE Chamber of Commerce’s confirmation that the country is in compliance with the main sanctions against Russian oligarchs, it affirmed that it will not be imposing sanctions on ordinary Russian citizens.
Such policy choices effectively open the door for state-sponsored sanctions evasion. For example, Sheikh Mansour bin Zayed Al Nahyan, best known as the owner of Manchester City and the deputy prime minister, has helped to manage relationships with wealthy Russians looking to move money into the UAE.
Valeria Scuto, a MENA Analyst at London-based risk consultancy Sibylline, referred to the increasing links as “not new, but increasing”.
She explained to The New Arab that the UAE is effectively responding to competition with other regional players such as Turkey, Iran, and Egypt that could alternatively use their currencies to help Russia evade sanctions and thus increase the international status of their currencies.
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Russians are taking advantage of the UAE’s lenient financial transparency regulations and data secrecy regarding the flows of capital to utilise cryptocurrencies for sanctions evasion.
Coinsfera, an over-the-counter crypto exchange, is a favourite for Russians who struggle to transfer money through banks due to Western sanctions or local restrictions. The over-the-counter (OTC) structure allows customers to buy crypto assets with local currency and sell them for hard cash in Dubai in minutes.
Because trades are cash-based and not reported publicly, it’s unclear how much money is being moved using crypto. The company is also helping Russian clients buy and sell real estate and luxury watches using cryptocurrencies.
While the UAE wants to maintain strong relationships with the US, inherent domestic political instability in America makes Abu Dhabi wary, undermining the level of confidence it has in the strategic partnership.
Thus, the UAE is seeking to hedge its bets by deploying its financial might to support countries like Russia to balance against the US, Magdy Abd Alhadi, an Egyptian economist, told The New Arab.
Furthermore, the UAE is leveraging its participation in the Abraham Accords and the US tolerance it created to exert pressure on Washington to get concessions on many outstanding issues in the bilateral relationship.
The explosion of financial transactions between Russia and the UAE, meanwhile, is also leading to a deepening of official financial relations.
The Moscow Exchange announced in June it will begin trading new currency pairs including the UAE’s dirham. The date when trading of these pairs will begin has not been announced yet, but the move signals entrenched financial arrangements.
Andrey Skabelin, the director of the Moscow Exchange's foreign exchange market department, said: “We see growing interest in these currencies and we understand that they will have liquidity. As a number of technical issues are resolved, we will launch these pairs”.
Skabelin explained the need to sign interbank agreements with Emirati counterparts to launch trading. As Russian traders get blocked from Western financial markets, such steps will help them use the UAE stock exchanges as a way to stay in business.
These deepening financial ties are being noticed globally. Reportedly, Russia is seeking payment in UAE dirhams for oil exports to some Indian customers. In addition, Bangladesh is also in pursuit of finding an alternative for the dollar to buy Russian energy and is considering similar options as India, including the use of the dirham, according to media reports.
“The prime minister said if India can import fuel from Russia, why can’t we?” Bangladesh’s planning minister said. He added that the prime minister ordered the government to figure out what currency should be used to buy fuel from Russia.
Scuto sees these developments as strategic. “Russia is a key player in OPEC+ and many regional conflicts where the UAE is involved such as Yemen, Libya, and Syria and the UAE cannot afford not to coordinate with it on issues of major national concern even if that would frustrate the West,” she told The New Arab.
However, in the long term, Scuto does not foresee the UAE transforming into a global hub facilitating the evasion of Russian sanctions, as it values its financial interests with Western businesses more.
Abd Alhadi gauges better prospects for the UAE in the reconfiguration of the global financial architecture. In his view, the UAE is using soft financial power to play an arbiter role in the emerging global financial world, which will empower its global standing as a small state reliant on soft power for influence.
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The UAE is trying to hedge its strategic bet on the US for security and economic relations by growing its relations with other global powers such as Russia.
The leveraging of its standing as a global financial hub is helping it strengthen such a position in a more financially fragmented world.
While the UAE is not betting on America’s demise, it is certainly planning for a multipolar world where the hegemony of the US dollar is no longer guaranteed and other financial power brokers rise in pursuit of rewriting the global financial order and the power it gives to its makers.
Ahmed Alqarout is the Lead Middle East and North Africa Analyst at Sibylline risk consultancy and a specialist in the political economy of conflicts. His research focuses on the impact of financial and economic policies on regime stability in the Middle East and North Africa.